An Economic Analysis of El Salvador

By

Ahmed Mehedi, Kashfia Hossain, Estiaqur Rahman, Md. Safkat Sifat, Md. Ohidul Islam

East West University

Table of contents

Page no.

Introduction 1

History of El Salvador 2

Economy of El Salvador 2

Main Economic Sectors 3

Finance & Trade 4

Economic Growth 5

External Sector Developments 6

El Salvador Foreign Exchange Reserves 9

Human Development Index ( HDI ) 9

Corruption & Crime 11

Transportation & Telecommunications 12

El Salvador Labor Force Participation Rate 13

Foreign Assistance of El Salvador 13

Remittances & Inequality 14

Economic Growth of El Salvador in Rostow's Stage of growth 16

1

An Economic Analysis of El Salvador

El Salvador is the country of Central America. El Salvador is a middle-income country with

6.21 million inhabitants (52.3% women, 47.7% men) located in the Pacific coast of Central

America. El Salvador is the smallest and most densely populated country of this region, with an

average of 295 habitants per square kilometer. The country has an unequal distribution of wealth,

displaying a GINI coefficient of 0.44, meaning that the richest 10% of the population receives

incomes 44 times higher than the poorest 10% (EHPM, 2011). At national level, 40.6% of the

households are poor and 12.2% of these families live in extreme poverty (EHPM, 2011). The

country is bounded on the south by the Pacific Ocean, on the west by Guatemala, and on the

north and east by Honduras. The capital is San Salvador. As of 2013, El El Salvador is a small

and highly-industrialized country that has recovered from a protracted civil war, but still suffers

from its aftermath in terms of a divided society.

History of El Salvador

The first inhabitants of El Salvador were the Pocomanes, Lenca and Pipil, who settled in the

central and western parts of the country in the mid-eleventh century.

In 1522, the Spanish Admiral Andrés Niño reached the Gulf of Fonseca and in 1524 the Spanish

Captain Pedro de Alvarado began the conquest of Cuzcatlán. In 1525, at a place called La

Bermuda, near the town of Suchitoto, the town of San Salvador was established and it was not

until 1546 that granted the title of city.

The country gained its independence from Spain on September 15, 1821, when the Act of

Independence of Central America was signed. However, it was not until 1824 that the Federal

Republic of Central America was founded and until 1841, proclaimed El Salvador as a sovereign

and independent republic.

His first major economic stake was the production and export of indigo, which peaked during the

seventeenth century. El Salvador became the largest producer of indigo in the region.

In the period 1871-1931 Liberal governments that expanded the cultivation of coffee, which had

2

taken off with the privatization of communal lands (1882), which went on to become the first

export occurred. This well is still important for commerce.

In 1929 came an economic crisis due to falling coffee prices in the international market. This

was the trigger for an indigenous and peasant uprising, which occurred in January 1932, which

was ruthlessly suppressed. Between 1931 and 1979 a series of authoritarian military rule, cycle

ended with a coup by General Carlos Humberto Romero and the establishment of a

Revolutionary Government were given.

The authoritarian political atmosphere of the 70s, the global drop in coffee prices and the

resulting economic problems and the constant electoral fraud were some of the issues that

triggered a war that lasted from 1980 to 1992 leaving about 75,000 victims.

The first democratic elections were held in 1984 when he was elected as President Jose

Napoleon Duarte. However, these were in the midst of civil war.

On January 16, 1992, the Farabundo Martí National Liberation Front (FMLN), will consist of

five armed groups and the government under the leadership of President Alfredo Cristiani, the

Nationalist Republican Alliance (ARENA), signed the Peace Agreements in Chapultepec,

Mexico.

The Presidency of the Republic was maintained by ARENA for the next 20 years. In 2009, the

FMLN won the presidency of the Republic and marked in history's first leftist government.

The current president, Mauricio Funes Cartagena, ends his term in 2014. 1

Economy of El Salvador

El Salvador's economy has traditionally been agricultural, but services and industry now employ a

greater percentage of the workforce and account for a much higher percentage of the gross domestic

product. El Salvador's economy was adversely affected by its 12-year civil war. Beginning in the

early 1990s, however, attempts were made to revive the country's economic life, and the economy

had recovered by the beginning of 2001, when El Salvador adopted the U.S. dollar as its official

currency. El Salvador's economy is heavily dependent on remittances from abroad, especially the US.

1 http://www.sv.undp.org/content/el_salvador/es/home/countryinfo/

3

In 1992 El Salvador economy has been improved. . Alfredo Cristiani, who as head of the Arena

party became president in 1989, launched free market initiatives and tightened fiscal control.

Competition was increased in a number of sectors; banks were privatized, import duties were

lowered, and price controls on consumer products were virtually eliminated. Tariffs were

further reduced under Armando Calderon Sol, who was elected president in 1994.

Commercial and financial services are fast replacing industry and agriculture as the mainstays of

the country's economy. As the once rural-based economy gives way to urban dominance,

peasants are abandoning farm labor and moving toward the cities in search of higher paying jobs,

leading to the development of shantytowns around many urban areas.2

Main Economic Sectors

There is many other economy sectors are given below:

Agriculture, forestry, and fishing

The most important agricultural products in El Salvador are coffee, cotton, corn (maize), and

sugarcane. Commercial fishing, regulated by the government, has added to the country’s export

earnings. Most of the fish caught commercially or for sport come from offshore waters and

coastal lagoons; they consist chiefly of crustaceans (including lobster and shrimp), mullet,

snappers, jacks, groupers, sharks, and anchovies.3

Resources and power

There is no mineral exploitation of significance in El Salvador. The main power sources, meeting

most of the country’s needs, are the hydroelectric projects on the Lempa River 35 miles (56 km)

northeast of San Salvador, which are administered by a government agency.4

2www.encyclopedia.com/topic/El_Salvador.aspx#3

3 www.britannica.com/EBchecked/topic/181798/El-Salvador

4 www.britannica.com/EBchecked/topic/181798/El-Salvador

4

Manufacturing

In the mid-20th century, there was a steadily increasing investment in industry, stimulated by the

Central American Common Market. Industrial plants were set up throughout the country, and

existing facilities were expanded, helped by government incentives, an advanced banking

system, and development credits from abroad. Manufacturing underwent a serious decline

beginning in 1979, a result primarily of civil unrest and political instability. Following the civil

war, manufacturing increased beyond the level of prewar output, and by the early 21st century it

accounted for more than one-fifth of the country’s gross domestic product (GDP). Manufactures

include beverages, canned foods, organic fertilizers, cement, chemical products,

pharmaceuticals, cigarettes, shoes, cotton textiles, leather goods, petroleum products, and

electronics.5

Tourism & Services

Since the early 1990s services have accounted for about three-fifths of GDP. Tourism suffered a

decline during the country’s civil war, but since the 1990s it has been an increasing source of

income. Some important tourist sites are the pyramids of Campana San Andrés; the complex of

Cihuatan; the ruins of the ancient cities of Cara Sucia, Tazumal, and Quelepa; and the Joya de

Cerén Archaeological Site, which was designated a UNESCO World Heritage site in 1993 and

consists of the ruins of a prehistoric farming village that was buried by a volcano c.ad 600.6

Finance & Trade

In 1980 the country’s commercial banks and its export-marketing agencies were nationalized. By

the early 1990s this trend had been reversed, and a comprehensive privatization program was

implemented, which continued through the early 2000s. In 2001 El Salvador adopted the U.S.

dollar as its national currency.

5 www.britannica.com/EBchecked/topic/181798/El-Salvador

6 www.britannica.com/EBchecked/topic/181798/El-Salvador

5

For the last four years the loan portfolio of the Salvadoran financial system has been growing at

an average rate of 3.5%, below the 11% growth average in the rest of the region. A report

produced by the rating agency Moody's notes that growth in El Salvador's financial sector has

been stagnant since 2010, as the total loan portfolio has not achieved growth rates above 3.5%

per year.A statement about the report published by Moody's notes that "... this low growth is due

to the lack of dynamism in the Salvadoran economy." 7

More than one-fifth of El Salvador’s imports are used for re-export (mostly apparel produced in

maquiladoras). Among other imports are machinery parts, foodstuffs, petroleum, and chemical

products. El Salvador’s main trading partner is the United States. Other partners include El

Salvador’s Central American neighbors—particularly Guatemala, Costa Rica, Honduras, and

Nicaragua—and Japan. El Salvador entered into the Central America-Dominican Republic Free

Trade Agreement (CAFTA-DR) with the United States in 2004.

Economic Growth

El Salvador's economy suffered from the global recession in 2009. A significant percentage of

the Gross Domestic Product (GDP) is derived from remittances; in 2010 the economy began to

recover helped by money sent home by Salvadorans working in other countries. The largest

percentage of the working population is employed in the services sector which also provides the

largest percentage of El Salvador's GDP. Industry's contribution to the GDP has increased. Major

industries are petroleum, chemicals, fertilizer, light metals, furniture, textiles, food processing

and beverages. The agricultural sector accounts for the smallest percentage of the GDP.

Agricultural products are beans, coffee, corn, oilseed, rice, sorghum, sugarcane, tropical fruits,

dairy products and beef. Cotton is also grown. Shrimp farming takes place along the coast.8

The Gross Domestic Product (GDP) in El Salvador contracted 0.06 percent in the second quarter

of 2014 over the previous quarter. GDP Growth Rate in El Salvador averaged 0.75 percent from

1990 until 2014, reaching an all time high of 2.53 percent in the second quarter of 1991 and a

7 http://www.centralamericadata.com/en/article/home/Analysis_of_Financial_Sector_in_Central_America

8 http://www.worldinfozone.com/country.php?country=ElSalvador&page=2

6

record low of -2.78 percent in the first quarter of 2009. GDP Growth Rate in El Salvador is

reported by the Central Reserve Bank of El Salvador.9

External Sector Developments

Exports

El Salvador is a traditional exporter of coffee, sugar, gold and iron and more recently processed

foods, ethanol and textiles. The main export partner is the United States. Others include:

Guatemala, Honduras, Nicaragua and Germany.

Exports in El Salvador decreased to 424.60 USD Million in October of 2014 from 433.70 USD

Million in September of 2014. Exports in El Salvador averaged 260.93 USD Million from 1991

until 2014, reaching an all time high of 532 USD Million in March of 2011 and a record low of

47.70 USD Million in November of 1991. 10

9 http://www.tradingeconomics.com/el-salvador/gdp-growth

10 http://www.tradingeconomics.com/el-salvador/exports

7

Imports

El Salvador's main imports are: fuels, food, capital goods and consumer goods. El Salvador main

import partner is the United States. Other include: Guatemala, Mexico and China. Imports in El

Salvador increased to 901.40 USD Million in October of 2014 from 833 USD Million in

September of 2014. Imports in El Salvador averaged 498.06 USD Million from 1991 until 2014,

reaching an all time high of 1027.10 USD Million in July of 2012 and a record low of 91 USD

Million in March of 1991. 11

11 http://www.tradingeconomics.com/el-salvador/imports

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Balance of Trade

El Salvador's trade deficit is the result of the country's need to import fuel, consumer and

industrial supplies. Coffee is the country's major export followed by sugar, textiles and gold. The

main trading partner is the United States with 40 percent of exports and 40 percent of imports.

Others include: Nicaragua, Honduras and Guatemala. El Salvador recorded a trade deficit of

476.80 USD Million in October of 2014. Balance of Trade in El Salvador averaged -237.13 USD

Million from 1991 until 2014, reaching an all time high of -14.60 USD Million in March of 1991

and a record low of -528.60 USD Million in May of 2012. 12

12

http://www.tradingeconomics.com/el-salvador/balance-of-trade

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El Salvador Foreign Exchange Reserves In El Salvador, Foreign Exchange Reserves are the foreign assets held or controlled by the

country central bank. The reserves are made of gold or a specific currency. They can also be

special drawing rights and marketable securities denominated in foreign currencies like treasury

bills, government bonds, corporate bonds and equities and foreign currency loans.

Foreign Exchange Reserves in El Salvador decreased to 2902.30 USD Million in October of

2014 from 3026.50 USD Million in September of 2014. Foreign Exchange Reserves in El

Salvador averaged 2207.19 USD Million from 1997 until 2014, reaching an all time high of

3385.20 USD Million in April of 2011 and a record low of 1462.10 USD Million in December of

1997. Foreign Exchange Reserves in El Salvador is reported by the Central Reserve Bank of El

Salvador.13

Human Development Index ( HDI )

According to the World Human Development Report 2013, El Salvador is the country in Latin America

to further increase the value of the Human Development Index between 1990 and 2012. Human

Development Index 0.68 and its HDI world ranking is 115.

The country has advanced on the path of democracy and human development, but still has many

challenges ahead for sustained growth of its economy and achieve equal opportunity, safety,

education and political participation its population.

13

http://www.tradingeconomics.com/el-salvador/foreign-exchange-reserves

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Progress is evident in major achievements such as reducing the illiteracy rate of persons aged 10

years or more, which fell from 28% in 1992 to 13% in 2011. In this period also halved and

dropout rates of pupils repeating grade in basic education.

It also increased the literacy rate of people aged 15 to 24 years old; raised the percentage of

students entering first grade and finish the sixth; increased the net enrollment rate and average

schooling.

In the area of health and nutrition were significantly reduced the rate of infant mortality and

malnutrition among children under five. The percentage of population with access to safe water

for household connections rose 30% between 1991 and 2011; while the percentage of households

in housing deficit fell from 55% to 29%.

Despite these positive results, the looming challenges are still considerable.

Since the outbreak of the global financial and economic crisis (2008) to date, El Salvador

recorded a poor performance in its main economic indicators. The HDI is stagnating, GDP has

grown at an average annual rate of 0.5% and income poverty has increased, returning to the

observed ten years ago.

With fiscal deficits that exceeded 4% in the past two years, public debt increased to 56% of GDP

and public finances are on a path of unsustainability, with a high risk of the government falling

into a situation of insolvency.

In a context of slow economic growth, creating decent work remains a major challenge. Of every

hundred people who are part of the economically active population (EAP), 7 and 44 are

unemployed and underemployed (with incomes below the minimum wage in the economic sector

in which they work).

Only a fifth of the workforce has decent work and only 28% of the EAP is contributor to receive

a pension. High levels of crime and insecurity and environmental vulnerability of the area are

also among the major problems that face the country. 14

14 http://www.sv.undp.org/content/el_salvador/es/home/countryinfo/

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Corruption

Corruption can be a challenge to investment in El Salvador. El Salvador ranks 83 out of 174

countries in Transparency International's Corruption Perceptions 2012 Index. El Salvador has

laws, regulations and penalties to combat corruption, but their effectiveness is inconsistent.

Soliciting, offering, or accepting a bribe is a criminal act in El Salvador. The Attorney General

has a special office, the Anticorruption and Complex Crimes Unit, which handles cases

involving corruption by public officials and administrators. The Constitution also established the

Court of Accounts that is charged with investigating public officials and entities and, when

necessary, passing such cases to the Attorney General for prosecution. In 2005, the government

issued a code of ethics for the executive-branch employees, including administrative

enforcement mechanisms, and it established an Ethics Tribunal in 2006.

The Legislative Assembly approved a new Transparency Law in 2011 in an effort to combat

corruption and increase government accountability. The law’s intended effectiveness has been

partially delayed pending the appointment of commissioners to the Access to Public Information

Institute, the newly-created entity responsible for ensuring the law’s implementation.

There have been some recent corruption scandals at the federal, legislative, and municipal levels.

There have also been credible complaints of judicial corruption. El Salvador has an active, free

press that reports on corruption.

El Salvador is not a signatory to the OECD Convention on Combating Bribery of Foreign Public

Officials in International Business Transactions. El Salvador is a signatory to the UN

Anticorruption Convention and the Organization of American States’ (OAS’s) Inter-American

Convention Against Corruption.15

Crime

In the past few years, El Salvador has experienced high crime rates, including gang-related

crimes Today El Salvador experiences some of the highest murder rates in the world. The

15

http://www.state.gov/e/eb/rls/othr/ics/2013/204636.htm

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Salvadoran government reported that the Super Mano Dura gang legislation led to a 14% drop in

murders in 2004. However, El Salvador had 66 homicides per 100,000 inhabitants in 2012, more

than triple the rate in Mexico that year. There are an estimated 25,000 gang members at large in

El Salvador with another 9,000 in prison. As of March 2012, El Salvador has seen a 40% drop in

crime due to what the Salvadoran government called a gang truce, A gang truce was the reason

cited for the drastic drop. For example, in the first two months of 2012, there was an average of

16 murders per day. That number dropped to less than five killings per day in late March 2012.

By April 14, 2012, there were no killings per day for the first time in over three years.16

As of May 2013, there were 70,000 gang members in El Salvador, with 9,000 serving time in

prison. El Salvador government tries to change current crime scenario. So they take a policy that

is the Alto al Crime program, a type of Crime Stoppers, was in full operation. The program

offered financial compensation for information resulting in the arrest of gang leaders. 17

Transportation and Telecommunications

El Salvador has adequate transportation facilities except in some of the more remote areas. Two

main routes of the Inter-American Highway, part of the Pan-American Highway, cross El

Salvador from Guatemala to Honduras, forming the framework of a road system that reaches

almost all parts of the country; one of these routes runs across the central highlands, the other

across the coastal plain. Several paved roads connect with these main highways. The country’s

narrow-gauge railroad is operated by a national agency; the main tracks link the capital with

ports on the coast and with the Guatemalan border. For seaborne commerce, El Salvador relies

on three ports—Acajutla, La Libertad, and Cutuco (near La Unión). El Salvador’s main outlet to

the Atlantic is through the Guatemalan port of Puerto Barrios, with which San Salvador is linked

by road and rail, via Guatemala City. An international airport was constructed in the 1970s on

the coastal plain 25 miles (40 km) south of the capital. It replaced Ilopango Airport, which now

serves as a military base. Severe damage to the country’s transportation network resulted from

16 http://en.wikipedia.org/wiki/El_Salvador#Crime

17 http://www.infoplease.com/country/el-salvador.html?pageno=3

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the civil war.El Salvador’s telecommunications system was privatized in the late 1990s;

however, it has been set back various times by natural disasters. Cellular phone usage in El

Salvador is high compared with that in most Central American countries, and the number of

fixed-line telephones, even in urban areas, has significantly decreased.18

El Salvador Labor Force Participation Rate

Labor Force Participation Rate in El Salvador increased to 63.60 percent in 2013 from 62.20

percent in 2012. Labor Force Participation Rate in El Salvador averaged 60.40 Percent from

2005 until 2013, reaching an all-time high of 63.60 Percent in 2013 and a record low of 52.40

Percent in 2005.19

Foreign Assistance of El Salvador

El Salvador has experienced two decades of social and economic advances and the Government

of El Salvador is a strong, durable partner in security and defense. El Salvador is one of four

countries selected to participate in a five-year (2011-2015) Partnership for Growth (PFG) effort.

A joint analysis identified the two most critical constraints to broad-based economic growth as

crime and insecurity, and low productivity in the tradables sector. The Government of El

18 http://www.britannica.com/EBchecked/topic/181798/El-Salvador/276687/Labour-and-taxation#toc276688

19

http://www.tradingeconomics.com/el-salvador/labor-force-participation-rate

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Salvador and the U.S. government subsequently identified 20 implementation targets consisting

of crime and violence prevention, human capital development, investment in infrastructure,

foreign investment promotion, institutional strengthening, and improved business environment.

U.S. government agencies are aligned to support PFG and ensure a whole of government

approach to spur higher, sustained, and more inclusive economic growth in El Salvador. Central

America Regional Security Initiative (CARSI) programs to improve regional security and reduce

gang violence complement and enhance U.S. bilateral assistance.20

Remittances & Inequality

El Salvador's economy is heavily dependent on remittances from abroad, especially the US.

Remittance have become influential in the Salvadoran economy.

Remittances in El Salvador increased to 3911 USD Million in 2012 from 3650 USD Million in

2011. Remittances in El Salvador averaged 3098 USD Million from 2001 until 2012, reaching an

all-time high of 3911 USD Million in 2012 and a record low of 1911 USD Million in 2001. 21

20

http://www.foreignassistance.gov/ 21

http://www.tradingeconomics.com/el-salvador/remittances

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In 2005 Salvadorans sent home between $2.55 and $2.83 billion or between 16 percent and 17

percent of GDP. These funds have remained steady in difficult economic times, becoming an

important source of foreign exchange. Majority remittance comes from the USA. The sector of

society that receives the majority of remittances in a country impacts the extent to which

remittances increase or reduce income inequality. If a large number of very poor people receive

remittances, then we might expect that overall income inequality in a country to decrease. The

geographical unit of analysis can also influence the findings of the impact of remittances on

inequality. For instance, within a village, migration might increase inequality between families.

At the same time inequality may decrease between poorer migrant sending regions and richer

regions elsewhere in the country.22

Poverty levels in the country declined significantly between

1991 and 2002 (about 27 percentage points), with extreme poverty dropping by half over the

same period. There were also important social advances, as infant and maternal mortality rates

were reduced and school enrollment and access to reproductive health and water services

increased.23

22 Remittances and Inequality in El Salvador (Karen Juckett)( December 5, 2006) 23

http://www.worldbank.org/en/country/elsalvador/overview

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Economic Growth of El Salvador in Rostow's Stage of growth

(1)Traditional Society

Agriculture once one of the country primary export products registered little growth in the letter

part of the 1990s.

In that time the technological progress was limited.

No sectors registered significant gains. Overall GDP growth rate fall 4.0percent 1999 and to 2.5

in 2000.

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(2)Pre-Condition For Take Off In The EL Salvador.

Most of the imported products are come from the United States of America others countries are

china and Mexico.The country develops their commercial agriculture product of each crops

which are export to the other countries. Technological progress to develop agriculture sector and

geothermal and hydropower. Maximum remittance are coming from US .For that reason their

income inequality is decreasing which interns their standard of living.

(3)Take Off

Looking at all the information of El Salvador, our opinion is that El Salvador is in stage 3,

according to the Rostow's Growth Model. We chose level 3 because; El Salvador isn't still highly

developed as the U.S or other countries. Although it reached that stage because it has made a lot

of progress every year. Before we had more poverty, now there is less, that is some progress.

Another thing that has made El Salvador reach that stage is that its economy has grown a little

bit.

San Salvador plays a huge role in El Salvador, because it’s the capital of El Salvador, the

president lives in the White house which is in San Salvador. This city is also important because

most people live there. The population of El Salvador is of 7,066,403. 42% of those people live

in San Salvador, which means that 296,788,926 people live in this small city .San Salvador has

the biggest population in El Salvador. It also has historical places like the statue of Divino

salvador del mundo, and the Cathedral. San Salvador is also the first place where people go when

they need a job. 7.3% of the people that working El Salvador, have to go either by bus or

walking to San Salvador. Another interesting fact is that San Salvador is the 3º place were most

tourist after the seas and lakes. It is also the city with highest economic devises. It is also the city

with most development in El Salvador!

Growth & education: 1997- more access to electricity, coffee exports reached $15 million,

improvement of 65 rural roads, 24 bridges, 24 potable water systems, and 29 rural

schools.Water & environment: Strategy began in 1997- over 173,000 people gained access to

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clean water, Democracy & Government: The main part was in 2005- 22 meditation centers

opened, more government plans came out.Health: 1998 death rates began to decrease, 13,240

children under age two and 3,310 pregnant women was completed.

So we can say that after the civil war, where all the El Salvador development came down in all

ways: agriculture was one of the main sectors that it economically affected. Tourism decreased,

even lots of Salvadorians where leaving the country to go to another place, specially the united

States. Even the coffee exportation (which is one of El Salvador greatest imports) was very

irregular after the Civil War. The only thing that maintained El Salvador’s economic was the

incoming currency- the dollar. But it became the real money until January, 2001. The country

made progress over time but the real and biggest change was 16 years after the Civil War. So in

1997 was the year that El Salvador developed the most.24

(4)-(5) Drive To Maturity And Age Of Mass Consumption

They does not exists in this growth stages but they are trying to reach that continuous growth

path though they are improved their previous stages.

24

https://geogon.wikispaces.com/DEVELOPMENT

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El Salvador is a middle-income country with 6.21 million inhabitants (52.3% women, 47.7% men)

located in the Pacific coast of Central America. El Salvador is the smallest and most densely populated

country of this region, with an average of 295 habitants per square kilometer. The country has an unequal

distribution of wealth, displaying a GINI coefficient of 0.44, meaning that the richest 10% of the

population receives incomes 44 times higher than the poorest 10% (EHPM, 2011). At national level,

40.6% of the households are poor and 12.2% of these families live in extreme poverty (EHPM, 2011).

The 2011 EHPM National Survey showed that rural poverty was 50.2% and urban 35.4%. The increasing

external debt of US$12.95 billion (51.7% of GDP) make it challenging for the government to sustain its

budgetary commitments to social programmes.

The country is highly dependent on imports and remittances (17% of GDP) making the poor

highly vulnerable to external shocks. El Salvador is very vulnerable to natural disasters, ranking

ten out of 173 countries in the 2011 World Risk Report and 23 out of 182 countries in the 2012

Global Climate Risk Index. More than 88% of the national territory is at risk, containing 95.4%

of the total population.

Since the end of the conflict, El Salvador has made significant progress towards consolidating

peace and democracy. The country's political transformation led to major structural reforms and

stable macroeconomic policies that resulted in strong economic performance (an average yearly

growth of around 6%) during the 1990s.25

Poverty levels in the country declined significantly between 1991 and 2002 (about 27 percentage

points), with extreme poverty dropping by half over the same period. There were also important

social advances, as infant and maternal mortality rates were reduced and school enrollment and

access to reproductive health and water services increased.

After an average economic growth of 2% during the last 15 years, GDP growth in El Salvador reached

4.7% in 2007. However, the effects of the global financial crisis in 2008 resulted in a drop in exports and

remittances, higher levels of unemployment and rising food and energy prices. Between 2007 and 2008,

the percentage of people in poverty increased from 34.6% to 40%. However, in 2012, the poverty rate

25 https://www.wfp.org/countries/el-salvador/overview

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was 34.5%, a figure that decreased to 28.9% in 2013, according to the latest survey of the Ministry of

Economy of El Salvador.

The Salvadoran economy has begun to recover at a slow pace: it registered a 2% growth in 2011; a 1.6%

in 2012 and a 1.9% in 2013. According to official data the Salvadoran economy is estimated to grow by

2.1% in 2014. However, there are still many challenges.

Crime and violence threaten social development and economic growth in El Salvador and negatively

affect the quality of life of its citizens. After a sharp and sustained increase in the levels of violent crime

since 2000, the murder rate peaked at 71 homicides per 100,000 inhabitants in 2009, declining slightly to

69 in 2011.26

26

http://www.worldbank.org/en/country